Consumers and businesses – especially small companies – are not using the full potential of a Single Market of 500 million people. At present, 44% of Europeans say they do not buy abroad because they are uncertain of their rights1. A new Eurobarometer survey published today has found that 55% of exporting businesses say that differences between contract laws are one of the major obstacles for trading across borders to consumers2.

The Common European Sales Law aims to break down these barriers. It will open markets for businesses and give consumers more choice and a high level of protection. It will facilitate trade by offering a single set of rules for cross-border contracts in all 27 EU countries. If traders offer their products on the basis of the Common European Sales Law, online shoppers would have the option of choosing a user-friendly European contract with a high level of protection with just one click of a mouse.

Which problems do companies face when selling to other EU Member States?

Only 9.3% of businesses that trade in goods sell across EU borders3. The reality is that businesses wishing to carry out cross-border transactions may have to adapt to up to 26 different national contract laws, translate them and hire lawyers, costing an average €10,000 for each additional export market. Adapting their websites can cost a further €3,000 on average.

This is a problem both for companies selling cross-border to consumers and for those doing business with other firms.

Small and medium-sized enterprises – which make up 99% of all companies in the EU – are disproportionately affected because they lack the in-house legal and other expertise needed to work with different national contract law systems. The cost to trade in several foreign markets is particularly high when compared to SMEs’ turnover. The transaction costs to export to one other Member State could amount up to 7% of a micro retailer's annual turnover.

To export to four Member States this cost could rise to 26% of its annual turnover. Traders who are dissuaded from cross-border transactions due to contract law obstacles forgo at least €26 billion in intra-EU trade every year. This is a direct cost to the EU economy in terms of trade – and jobs.

In business-consumer transactions, 55% of companies active or interested in selling to consumers outside their national market said they were held back by a range of contract-law related obstacles4:

The main contract law-related obstacles (ranked by companies) for business-consumer transactions are:

Finding out about foreign contract law 40%

Complying with different consumer protection rules abroad 38%

Obtaining legal advice on foreign contract law 35%

Solving cross-border contractual disputes 34%

In business-business transactions, 49% of companies active or interested in selling to consumers outside their national market said they were held back by a range of contract-law related obstacles5:

The main contract law-related obstacles (ranked by companies) for business-to-business transactions are:

Finding out about foreign contract law 35%

Solving cross-border contractual disputes 32%

Obtaining legal advice on foreign contract law 31%

Agreeing on which contract law should apply 30%

Which problems do consumers face when shopping cross-border?

Only 7% of consumers buy online from another Member State, compared to 33% who buy by internet in their own country6.

At the moment, people shopping online from another European country can be refused sale or delivery in their country: this happens to 3 million consumers in Europe each year. This is because the barriers to trading in other EU Member States act as a disincentive to companies to serve customers EU-wide.

44% of consumers say that uncertainty about their rights discourages them from buying from other EU countries.7

How will consumers benefit from the Common European Sales Law?

Consumers will have the same high level of protection for their rights across all Member States. Consumers will be able to rely on the Common European Sales Law as a mark of quality. For example, consumers will be offered a free choice of remedies if a faulty product is delivered. This means that consumers could, for instance, terminate the contract, or ask for replacement, repair, or price reduction. Currently such a free choice does not exist for the large majority of consumers across the EU. These remedies would also be available to consumers who have bought digital content products such as music, films, software or applications that are downloaded from the internet. These products would be covered irrespective of whether they are stored on a tangible medium such as a CD or a DVD.

This high level of consumer protection will give consumers the confidence to buy products in other EU countries.

Because the Common European Sales Law will make it cheaper for traders to sell across a border, it will encourage companies to export to more markets abroad. This will allow consumers to gain access to more and better offers at a cheaper price. Online shoppers should no longer get messages such as “this product is not available in your country” because of differences of national contract laws. According to estimates, almost half (44%) of consumers who shop online are uncertain about their rights. Collectively, these consumers could save €380 million if they would make at least one online cross-border purchase.

The average price differences for consumer goods across EU countries amount to approximately 24%.8Consumers in smaller EU countries, such as Malta, Cyprus, the Czech Republic, Slovakia and Slovenia,9 are particularly disadvantaged by higher prices. A recent mystery shopper study testing the availability of online offers of popular consumer goods showed that in 50% or more of the cases consumers could buy products at least 10% cheaper in other EU countries.10 Consumers based in Portugal, Italy, Slovenia, Spain, Denmark, Romania, Latvia, Greece, Estonia, Finland, Hungary, Cyprus and Maltawould particularly benefit from better prices when shopping abroad in the EU.11

The same mystery shopper studyalso showed that the choice of products is more restricted in about half of the EU countries. In the majority of product searches (Cyprus (98% of the cases), Malta (98%), Luxembourg (80%), Lithuania (76%), Latvia (72%), Ireland (71%), Belgium (65%), Estonia (61%), Portugal (59%), Finland (58%), Slovenia (54%), Romania (51%) and Greece (51%))12 for products out of a basket of 100 popular consumer goods, the products were not available online domestically.

What's in it for companies?

While it would become cheaper for all businesses to trade across borders, small and medium sized enterprises would benefit in particular – they would be able to afford to expand into new markets. The cost of cross-border e-commerce would fall once companies no longer have to adapt their websites to the law of each EU country in which they sell. This will boost the e-commerce sector and in general small and medium-sized enterprises which make up 99% of EU businesses.

Overall, 71% of companies said they would be likely or very likely to use a single EU contract law for cross-border sales to consumers13 and 70% for cross-border trade with businesses14.

According to the Eurobarometer surveys released by the Commission today, companies said that with a single European contract law they would export more: around half said they would expand their business to at least three more countries (50% for sales to consumers and 48% to businesses).

In addition, the Common European Sales Law would provide companies with legal certainty – they could rely on one single set of rules that would be valid in all 27 Member States, for sales contracts to both consumers and other businesses.

Will the Common European Sales Law replace national contract laws?

No. The Common European Sales Law would exist as an option alongside national contract law. Sellers can voluntarily use a set of rules that is identical in all 27 Member States. Those who do not want to use the Common European Sales Law can simply continue using their national rules. Consumers will always be clearly informed, and will have to agree explicitly before using a contract based on the Common European Sales Law.

What about freedom of contract? How is that respected?

The principle of freedom of contract is respected as both parties have to agree on the application of the contract. Nobody is obliged to use it. The Common European Sales Law would be a single set of contract rules, a second regime, which could be used by the parties voluntarily in cross-border transactions. The Common European Sales Law would not cause any costs to those companies that do not want to use it. Companies that decide to use it would only do so if the economic advantages outweigh the costs.

How would the Common European Sales Law work in practice?

Example 1

Bísaro-Salsicharia Tradicional, a small company based in northern Portugal, sells local pork products. It currently sells to traders and consumers from six other Member States. These exports contribute 8% of the company's annual turnover. The foreign companies with which it trades always insist that their own national law apply to the contract. The company wants to enter the Dutch market, but feels deterred by the differences in contract and consumer law compared to Portuguese law. To date, it has invested approximately 5% of its turnover to expand into foreign markets. The company feels that an EU-wide contract law would simplify transactions and make them more fluid. By using a Common European Sales Law, it would expect to export to more countries, increasing annual turnover by up to 15%.

Example 2

Laboratorium Kosmetyczne Dr Irena Eris, a medium-sized Polish company trading in cosmetics, feels that differences in contract laws create considerable costs and are an important barrier for its sales to Romania. The company is particularly affected by the differences in the rules on delayed payment by retailers. The Common European Sales Law, available in all EU languages, provides one complete set of rules dealing with late payments (interest rate, due date, damages etc). The Polish company could use it for all its contracts with businesses in Romania or in any other EU country, without having to take national laws into account.

Example 3

A Bulgarian resident, Kalin, decides to buy an e-book-reader for his wife's birthday. He goes to a local electronics shop, but only finds three models of e-book-readers. The cheapest costs about €100 and the other two cost about €250 each. Kalin wants to know if more choices are available. A friend tells him about two well known online shopping sites. Amazed by the choice offered, Kalin chooses to buy a particular model which costs €160. However, once he reaches the step where he has to indicate his country of residence, the website makes it clear that Bulgaria is not on the list of countries the company sells to.

Kalin tries another online company and finds an alternative model of e-book-reader for an even better price. However once again, he faces the same problem: the company does not allow for the product to be bought from its UK website and Kalin is redirected to a website which allows him to buy it from the United States.

Kalin finally manages to buy the e-book-reader but still wonders why it was easier to buy the product he wanted from the United States than in Europe.

Example 4

A German beekeeper which produces and sells honey has bought a machine from a French company. The machine turns out to be faulty. The French supplier agrees to repair the defect, but refuses to pay for the transportation of the machine from Germany to France. The German company wants to clarify who should pay and whether the contract can be terminated, but would need to pay for costly legal advice. The Common European Sales Law would provide a clear and complete set of rights and obligations for both parties if the product turned out to be defective. In particular, the Common European Sales Law clearly states that the costs of transportation are to be borne by the seller.

Example 5

A company with headquarters in Poland wants to expand but has experienced problems stemming from differences between contract laws in Poland, the Czech Republic, Slovakia and Hungary. In particular, the diverging rules on delivery make it difficult to draft contracts which would be valid simultaneously in all four markets. The Common European Sales Law, available in all EU languages, provides one clear set of rules which the company could use in all its cross-border contracts, including the place, time and means of delivery, the seller’s obligations in charge of the carriage of goods, the parties’ obligations and rights in cases of early delivery or delivery of a wrongful quantity.

What are the next steps?

The proposal will now pass to the European Parliament and the Council of the EU for adoption in the ordinary legislative procedure and by qualified majority. Once adopted, the Regulation will enter into force 20 days after its publication in the EU’s Official Journal. The legal basis for the proposal is Article 114 of the Treaty on the Functioning of the European Union (TFEU) on the internal market.